How to Dig out From December’s Debt

The start of the new year feels like a financial clean slate — right up until your credit card bills arrive.

It’s easy to forget about the entertainment and travel you enjoyed, the food and drink you consumed or the store card you applied for at the cash register. But bills jog your memory. And they may mean you’re going to have to make some changes to pay up.

So what now? We asked some personal finance bloggers how they manage to keep holiday celebrations from morphing into debt that lasts all year. Their advice: Once you make a mess, act fast to contain the damage.

Walk back some purchases

Gifts for you or your spouse may need to go back. “It sounds unromantic, but if you haven’t opened it, return it,” says Carrie Rocha, who blogs at Pocket Your Dollars. “Even if it’s furniture, think hard about whether you can really afford it.”

You can also consider converting gift cards to cash through an online site such as Gift Card Granny, though you shouldn’t expect to get face value.

Deal with remaining debt

Find money to pay down your debts by spending less or earning more; a combination is ideal.

Spending less can mean a frank talk with loved ones about trading dinner and a movie for cooking at home and Netflix, as Dollar Diligence blogger Kyle Steinkuhler did while repaying debt and saving for an engagement ring. It can mean cutting everyday luxuries like cable TV until your debts are paid, or starting a side hustle to bring in more money.

Pour that additional money into paying down your credit cards, starting with the highest-interest one. That’s the debt avalanche approach; it’s fastest and saves the most money.

If you have good credit, consider a balance transfer credit card offer. Tonya Rapley, who blogs at My Fab Finance, cautions that transfer fees might amount to more than you’d save, so do the math. If you proceed, Rocha suggests automating your payments to pay the bill on time and erase the debt before the teaser interest rate expires.

At tax time, divert any refund money to paying off your credit cards — and if you get a refund every year, consider adjusting your withholding amount. Why let the government use your money all year for free while you pay interest on credit cards?

If you overspend consistently or feel paralyzed by the size of your debt, you may need help. “If it feels overwhelming or hopeless, connect with a nonprofit counseling agency,” Rocha says. They offer budgeting help for free.

You won’t be alone. Bruce McClary, spokesman for the National Federation for Credit Counseling, said January is their biggest month, thanks to New Year’s resolutions and holiday spending that proved the last straw for families near the breaking point.

Rethink your assumptions

To keep the cycle from starting over, figure out why you overspent. Rapley had to come to grips with a belief that buying a gift for someone meant she valued them. For Rocha, it was thinking that a “spirit of generosity” should guide holiday spending.

Who wants to send a message that you don’t value people or you reject the spirit of generosity? But instead of spending a lot of money, spend time: Thoughtfully choose a gift that shows you really “get” the person, or arrange to spend time together or share an experience.

- Total every holiday expense, even little things: gifts, decorations, gift wrap, postage, entertainment, food, travel. Divide by your pay periods between now and December to see how much to save from each check.- Put the money out of reach in a designated savings account not connected with your checking account, or open an account at a different bank or credit union. Rapley said some people go so far as to buy Toys R Us or Target gift cards to use when the holidays roll around.- Consider a credit-builder loan. You qualify for a loan, but the lender tucks your money away. Once you’ve repaid the loan, you get the money — plus you’ve built a record of on-time payments, which helps your credit scores.